The yield needed on a taxable investment in order to match the tax-free return offered on a municipal bond. This calculation is an important resource for determining which investments -- taxable or tax-exempt -- would yield more for you. The taxable equivalent yield calculation can help you determine which investment offers the best return when all taxes -- Federal, state and local -- are taken into consideration. For example, a six percent yield to maturity on a AAA-rated, 20-year municipal bond has a taxable equivalent yield of 9.375% for an investor in the 36% Federal tax bracket. This individual would need to earn a 9.375% yield on a taxable bond with a similar rating and maturity in order to match the tax-exempt return of six percent from the municipal bond. When state and local taxes are taken into consideration for bonds issued in your state, the taxable equivalent yield is higher, making the tax-exempt investment even more appealing. Mathematically, the taxable equivalent yield is expressed as the yield on the municipal bond divided by one minus the Federal tax bracket.